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Could the costs of Brexit hit holidays?

Deal or no-deal on Brexit, which is it to be and at what cost? asks Ian Taylor

If a week is a long time in politics, a fortnight is a good deal longer than two weeks.

The UK government’s proposed Brexit plan finally emerged with unanimous Cabinet support on July 6, only for Cabinet support to unwind spectacularly over July 8-9.

Theresa May steadied the government ship by the end of last week, publishing a White Paper on future relations with the EU (July 12). This proposed a free trade area for goods and “new” unspecified arrangements for services. It also addressed many of the concerns most pertinent to travel.

May promptly sank the ship herself (July 16) to win a Parliamentary vote which otherwise threatened to bring down her government.

The business newspaper the Financial Times reported (July 17): “Theresa May gave way in a new confrontation with hardline Brexiters.”

She accepted four amendments to a customs bill deigned to facilitate the ‘free trade area’ envisaged in the White Paper, claiming all were “consistent” with the strategy set out last week.

The Financial Times summarised the amendments as follows:

“One would require the UK to have a separate VAT regime from the EU.” This could prove a mixed blessing, though the UK hospitality sector might like it.

“Another would require the government to table primary legislation if it wished to keep Britain in a customs union.” Tory Brexiters believe this would prove impossible.

A third requires a legal commitment that “there could not be a customs border in the Irish Sea”. This is May’s position anyway – she could not maintain the coalition with the Loyalist DUP of Northern Ireland which keeps her in office if she reneges on this.

The fourth amendment is the tricky one, making it “illegal for Britain to hand over to the EU tariffs [on goods] collected in the UK unless there is an agreement that the EU collect tariffs for Britain on a reciprocal basis”.

The government White Paper explicitly stated: “The UK is not proposing the EU applies the UK’s tariffs and trade policy at its border for goods intended for the UK.” Oh dear. That does not sound consistent.

It led Conservative former chancellor Ken Clarke to ask: “Are any statements by the government on its trade policy to be relied on for more than a week or two?”

Shake it all about

An old English dance song rather captures the current stance (dance?) of the government – the Hokey Cokey.

Taking each limb in turn, dancers are called on to “Put your left arm in, left arm out, in out, in out, shake it all about” and so on to “Do the Hokey Cokey”.

By Wednesday (July 18) the Financial Times could declare “May restores her frail grip”. She did so by threatening an immediate vote of no-confidence in herself – kind of ‘Do as I say, or the Prime Minister gets it.’

The newspaper quoted an unnamed minister outlining what increasingly appear to be the only options left to May: “Either we delay Brexit by asking [the EU] for an extension of the Article 50 process or she will be forced to hold another election.”

On Thursday (July 19), new Brexit secretary Dominic Raab (who replaced David Davis, who resigned last Sunday week – try to keep up) let it be known that his Department for Exiting the EU has a new strategy.

It is poised “to inundate businesses and households with technical advice on how to prepare for the UK leaving the EU without a withdrawal agreement”.

Raab will publish 70 documents explaining how a disorderly Brexit would affect a range of sectors. Raab is fervently pro-Brexit by the way.

Another fervent Brexiter, former foreign secretary Boris Johnson, made his initial pitch to replace May on Thursday, declaring her White Paper plan would leave Britain in “miserable permanent limbo”

A second unnamed minister emerged to tell the Financial Times: “The only way out would be a general election.”

Deal, no deal

The silence from Brussels through all this spoke volumes. However, the EU did ramp up its own preparations for a no-deal Brexit.

On Thursday, the EC published a 15-page paper on the legal consequences of Britain becoming a ‘third country’.

It was the 68th so called ‘preparedness notice’ or ‘doomsday note’ the EC has issued.

The Financial Times noted: “Senior EU officials acknowledge that in the event of no deal, the infrastructure and workforce are not yet available to apply EU law [on] the first day after Brexit.

“There are not enough customs officers, inspection posts or regulators for such a task.

“They accept that EU governments will not blindly enforce laws that threaten financial stability, ground air traffic or halt production at car or aircraft factories in Europe, as would in theory happen.”

In the event of no deal, EU officials therefore propose “parachute” arrangements. They are working on a “secret transition” to be “unveiled only at the last moment”.

In a comment for Travel Weekly this week Mark Tanzer, head of UK travel association Abta, noted somewhat hopefully: “We’ve started to see some movement . . . [despite] a lack of clarity in a number of areas.”

He suggested the Brexit White Paper “does provide a starting point” from “a business point of view, while pointing out: “The EU will have its own ideas.”

Take a Chance on me

Interestingly, a report by management consultancy Clifford Chance this week estimated the costs to UK households and business sectors of different Brexit outcomes.

It suggested five possible scenarios, two of which roughly approximate to what seem at present to be the two most likely outcomes.

One is the White Paper option of a ‘bespoke customs deal’ with Britain outside the EU single market.

The other is the no deal ‘option’ with Britain outside the EU customs union and single market and World Trade Organisation (WTO) rules in force.

The report estimates the first of these would increase average UK household costs by 2.6% in the first year, and the second add 4% to the average household’s bills.

Either of these would be about on a par with, but not in excess of, the impact of the financial crisis and recession of 2008-09.

The impact of either outcome could be mitigated by the UK introducing zero tariffs on trade with non-EU countries – limiting the rise in average household costs to 2% (White Paper deal) or 3.1% (no deal).

Clifford Chance points out the impact would vary by household income and region. “Those earning least would see their overall costs increase by 3% more than those earning most.”

The study suggests Northern Ireland would suffer most under all scenarios while the south east, excluding London, would suffer least.

The burden would fall on discretionary spending, potentially hitting travel. The report suggests:

“Consumers will have no choice but to absorb price rises. We expect they will look to reduce or remove less essential purchases, taking shorter or cheaper holidays or not travelling.”

It warns: “We expect to see overall spending drop in more discretionary sectors. People will continue to buy groceries even if prices rise, but they may choose cheaper alternatives. We are more likely to see people cut back on holidays and eating out.”

The report estimates the highest burden of increased costs of labour under the White Paper option would fall on UK hotels and restaurants.

The heaviest burden under the no-deal scenario, from tariffs and labour costs, would fall on food retailers, general retailers and hotels and restaurants – in that order.

Whole lot of shakin’

For all the gyrations, I stand by what I wrote a week ago – namely that “May will stumble on to October when she may well fall.”

She will survive until then if for no other reason than that Parliament will shut down for the summer recess to resume in early September, by which time May ought to be in the final stages of negotiations on some sort of deal with the EU.

Thereafter, who knows? The politicians’ dance will continue yet awhile. But at some point, soon now, the music must stop.

In the meantime, if ‘in out, in out, shake it all about’ palls, there is always Jerry Lee Lewis’s ‘Whole Lotta Shakin’ Goin’ on’.

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